The FICO Scores You Didn’t Know About

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Do you know what your credit score is? As most of us are aware, FICO credit scores are how lenders measure our credit-worthiness when considering us for a loan or line of credit.

It’s a way of calculating the risk associated with lending us money. And more risk often equals higher interest rates and less favorable terms for the credit we seek.

The base or traditional FICO credit score is a number that ranges from a low of 300 to a high of 850, and involves variables like on-time payments, how much we owe, our total available credit and other factors.

FICO scores are calculated using the following weighting:

Based on these factors, the three major credit bureaus or rating agencies (Equifax, Experian and TransUnion) will assign us a score that represents the presumed risk a creditor is taking on when they decide to lend us money.

That’s just one of the reasons to maintain a good credit score. But here’s where it gets interesting…

Did you know that you have more than one FICO score? That’s right. In fact, there are literally dozens of FICO scores, depending on what type of loan you’re seeking, who is inquiring, and which rating agency is providing the score.

I have how many FICO scores?

If you’ve checked your credit score (which you can do here), you’ve probably noticed that the three rating agencies often provide different results, even though they’re all based on what’s found in your credit report. That’s because each agency has a proprietary way of calculating and assigning a value to the specific items within your report.

Why so many? Well, in addition to the variations found within the proprietary models of the rating agencies, there are industry-specific credit scores that are used for particular loan types.

Industry-specific FICO scores are made available to lenders based upon whether you’re applying for a mortgage, buying a new car, trying for a credit card, or even taking out a personal loan.

Why the different FICO scores?

The company that introduced the FICO scoring system was originally called Fair Isaac Corporation, but is now simply named FICO. Since the system was first made available in 1989, it has undergone many changes in its weightings and metrics.

Through using the FICO system, creditors have found that certain variables within an individual’s credit report have more impact than others when considering different loan types.

For example, when applying for a credit card, the score may place an even higher value on your credit history and utilization rate than the traditional one does. If applying for a personal loan, it may be more important to measure how many new lines of credit you’ve applied for recently.

For an auto loan, the length of time you’ve had credit and the different credit types may be more valuable.

What is a FICO Score 8?

In addition to the different FICO scores used for different credit types, there’s also what’s called a FICO Score 8. This FICO score is the newest generation of the credit risk measurement system, and it uses a slightly different set of rules.

While key metrics remain the same, some of the FICO Score 8 differences include:

More sensitivity to a high credit utilization rate on a single card versus total credit utilization.

Less value placed on late payments that are isolated incidents, while more value is placed on repeat offenses.

Less weighting being given to authorized users on a credit card account for the purposes of establishing credit history.

No negative value assigned to collection accounts of less than $100.

Can I see all of my FICO scores?

The FICO score that consumers see when they request a copy of their credit score from each of the credit bureaus is the base or traditional FICO score. Only lenders or other legitimate requesters are able to purchase the industry-specific credit scores – and only when they are authorized to do so.

With the introduction of the FICO Score 8 variables, the score that consumers see now includes the new weightings and considerations of this latest version. Because of this, you may see a slight fluctuation in your credit score as it undergoes interpretation by the credit rating agencies.

As always, the best way to guarantee a good credit score is to understand how the scores are calculated, and to follow a few basic principles. Avoid late payments; don’t over-extend any of your credit cards; and keep a diverse blend of credit types.

By following these simple rules, your credit score will increase over time – making you an excellent risk/reward for any creditor.

Mike Randall is most knowledgeable in the areas of credit scores and credit cards, having written on those topics and others for the past eight years. He graduated from California State University with a degree in English literature, and he has an extensive background in personal finance studies. When he's not keeping BadCredit.org readers informed of changes in the subprime market, Mike’s hobbies include sailing and gourmet cooking.

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